Deliberations in Congress Will Impact Small and Mid-Market Businesses

Many (if not most) of my business clients are taxed as partnerships and S-corporations, which are commonly referred to as “flow-through” entities, because they pay no corporate level taxes. Most headlines today are focused on how President Trump and Congressional Republicans will handle the corporate tax rate, i.e. the entity-level tax rate that C-corporations pay, and also the individual tax rate. But if C-corporation rates drop to, say, 20%, and the dividend tax rates remain about the same, then without tax reform for flow-through entities, it could cause a significant shift in how professionals advise their clients on tax treatment, and you might see entities converting to C-corporations. This article discusses options that are floating in the halls of Congress on how to treat flow-through entities as part of comprehensive tax reform. Stay tuned.